I had sync issues with my photos as well.
I could see my camera roll on my iPhone, but my Albums, which I synced from iPhoto were messed up. The names of the Albums were there, but no icon to the left. Going into the Albums showed a black screen.
My iPhone SW is 4.0.2
My iTunes SW is 10.0
I called Apple support and they had me do several things.
First, was to reset my sync history. (quit everything) Go into Applications and launch iSync. In iSync, go into Preferences and click Reset Sync History. Quit iSync and Reboot.
This did not fix the problem completely.
The next thing they had me do was create a new Album in iPhoto and add some photos. Then, in iTunes, select this new Album to sync. Click Apply then Click Sync. (sometimes it seems Apply also starts Sync)
When that was done, I saw a message on my iPhone stating it was updated (or rebuilding, can't recall) the database.
Then, everything worked fine.
I should point out that I had several other errors prior to the photo sync issue. Apple had me do an unistall of iTunes 10 and a reinstall. It's a complicated process. Here's the link from Apple for the steps to do this.
http://support.apple.com/kb/HT1224
So, if you still have issues after resetting Sync History and adding a new Album, you might have to try an unistall and reinstall of iTunes.